Company Profile

Hater Sdn. Bhd. is a company specializing in customized gifts. The company first started by Mr. Harris together with his wife Ms. Territer in 1988 when both lost their jobs due to the severe recession as a result of the fall in the overall share market in US. Due to his great business network in his heydays as a major banker then, he was able to secure a great amount of businesses. From staff strength of just only eight when they first started, the company now employs a total of 189 staffs and operates in a number of countries especially in Asia where most of its clients are based in. It has dedicated sales centers in those countries they operate in and to date, the company has sales centers in China, Singapore and Malaysia.

Agenda for a Forthcoming Management Meeting

A Board of Directors (BOD) meeting will be held in March 2019 to review the corporate performance for the year ended 31^stDecember 2018 and to formulate the strategic plan for the year ending 31^stDecember 2019. The following issues will be discussed and deliberated at the said meeting.

Item 1: Review of Hater Sdn. Bhd. financial performance for the year ended 31^stDecember 2018

To review and critically evaluate the financial performance of the THREE countries they operate in for the year ended 31^stDecember 2018. Based on the loss made by Malaysia reported in its financial statements for the year, the management is contemplating of whether to shut down the operations there and just concentrate in its two other markets.

Item 2: Asset replacement programme

One of its factories in China has been operating for some years now and the machines have been in service for more than 8 years. Recently, one of the machines caught fire due to some circuitry problem and is no longer working. The purchasing manager has sent out an invitation for tender for the replacement and has received three quotations from different suppliers offering machines that have the same capability of the old machine to be replaced.

Item 3: Establishment of a new product, Holograph

Due to the saturation of its product line over the years and the increasing competition from new entrants, the company recently invented a brand new product line called Holograph for the Singapore market. It projects a 3D image of words within the LED without the use of any 3D spectacles. A market survey conducted shows a general acceptance of the new product. A proposal was therefore put forward to produce and sell the new product.

The strategic planning team at headquarters was asked to undertake an economic and strategic evaluation of each of the above proposals and to table the report for deliberation at the forthcoming BOD meeting. The following information is made available to the strategic planning team:

1.The actual financial and operating data for the year ended 31st December 2018 is given inAppendix A.

2.The forecast operating data for the three machines to be replaced is given inAppendix B.

3.The forecast financial and operating data for the new product, Holograph for the year ending 31st December 2019 is given inAppendix C. However, there is some uncertainty pertaining to the price/demand relationship for this product as stated in the original estimate. There is a possibility that sales volume can range from 1,800 to 2,600 units in steps of 100 units and the selling price can range between RM280 to RM400 per unit in steps of RM20.

Required:

As the newly recruited management accountant of Hater Sdn. Bhd., incorporat a critical evaluation of each of the three items stated in the agenda for the forthcoming BOD meeting. it must include relevant financial analysis, short run and long run strategic factors to consider for each strategic option under consideration together with your advice (suggestions and recommendations) to assist the Board of Directors in formulating Hater Sdn. Bhd.'s strategic plan for the year ending 31st December 2019 that will enhance its profitability and competitiveness.

Appendix A: Detailed financial and operating data for the three divisions for the year ended 31* December 2018 MALAYSIA CHINA SINGAPORE TOTAL RM'000 RM'OOO RM'000 RM'000 Cost Direct Materials 200 800 400 1400 Direct Wages 200 900 350 1450 Production Overhead - Variable 50 300 150 500 - Fixed 180 600 300 1100 Subtotal 630 2600 1200 4450 Selling Overhead - Variable 25 200 100 325 - Fixed 280 250 350 880 Administration Overhead 135 450 200 785 Subtotal 440 900 650 1990 Share of Head Office Costs 150 200 100 550 Total Costs 1220 3700 1950 5990 Profit (Loss) (220) 300 50 130 Sales 1000 4000 2000 7000 Note: 1) 30% of the fixed selling overheads are allowance charged by the head office on corporate advertising it incurred for corporate branding exercise. 2) The administration overheads are fully location based expenditure.Appendix B: Forecasted operating data for the three machines to be replaced Machine A Machine B Machine C Initial cost (RM) 120,000 100,000 60,000 Useful Life (years) 3 4 2 Running cost (RM per annum) 20,000 25,000 35,000 The company's cost of capital is 10%. Appendix C: Forecast financial and operating data for Holograph for the year ending 31* December 2019 Annual outputs 2,100 RM Selling price per unit 360 Variable cost per unit: Direct material cost 100 Direct labour cost 80 Production overhead cost 20 Total product related fixed cost 300,000